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Sugar firms stare at losses, with estimate of record output, after 2 years

Sugar mills rely heavily on banks for working capital loans, since production is over a five-six month period, but the output gets sold over the whole year or more..

It has taken only one announcement to change the outlook for sugar companies. The forecast of a 13 per cent increase in production, compared to previous estimates, has panicked the market, eroding prices of the commodity and the stock price of manufacturers. In sum, after a year of record profit and a second reasonably good one, top sugar companies again seem on the verge of an extended downturn. And, given the current environment in banking, a number of companies might not be able to swim through.

“Companies have not been able to repair their balance sheet in two years of recovery. The industry has already started getting worrying feedback from banks. Given the recent developments in banking, it will be challenging to arrange funds for many players, unless the sugar sector gets preferential treatment,” said Tarun Sawhney, vice-chairman at Triveni Engineering and Industries, which has seven sugar mills in Uttar Pradesh.

Sugar mills rely heavily on banks for working capital loans, since production is over a five-six month period, but the output gets sold over the whole year or more. And, farmers are to be paid immediately for sugarcane, mostly from bank loans.

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